INTERNATIONAL

MARKETING

Lars Perner, Ph.D.

Assistant Professor of Clinical Marketing
Department of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443, USA
(213)740-7127

Lars Perner, Ph.D.

Assistant Professor of Clinical
Marketing
Department of Marketing
Marshall School of Business
University of Southern California
Los Angeles, CA 90089-0443,
USA
(213) 740-7127

INTERNATIONAL MARKETING

The Global Market Place

Globalization of Markets and Competition: Trade is increasingly global in

scope today. There are several reasons for this. One significant reason is
technologicalbecause of improved transportation and communication
opportunities today, trade is now more practical. Thus, consumers and
businesses now have access to the very best products from many different
countries. Increasingly rapid technology lifecycles also increases the

competition among countries as to who can produce the newest in technology.

In part to accommodate these realities, countries in the last several decades
have taken increasing steps to promote global trade through agreements such
as the General Treaty on Trade and Tariffs, and trade organizations such as the
World Trade Organization (WTO), North American Free Trade Agreement
(NAFTA), and the European Union (EU).

Stages in the International Involvement of a Firm. We discussed several

stages through which a firm may go as it becomes increasingly involved across
borders. A purely domestic firm focuses only on its home market, has no
current ambitions of expanding abroad, and does not perceive any significant
competitive threat from abroad. Such a firm may eventually get some orders
from abroad, which are seen either as an irritation (for small orders, there may
be a great deal of effort and cost involved in obtaining relatively modest
revenue) or as "icing on the cake." As the firm begins to export more, it enters
the export stage, where little effort is made to market the product abroad,
although an increasing number of foreign orders are filled. In the international
stage, as certain country markets begin to appear especially attractive with
more foreign orders originating there, the firm may go into countries on an ad
hoc basisthat is, each country may be entered sequentially, but with
relatively little learning and marketing efforts being shared across countries. In
the multi-national stage, some efficiencies are pursued by standardizing across
a region (e.g., Central America, West Africa, or Northern Europe). Finally, in
the global stage, the focus centers on the entire World market, with decisions
made optimize the products position across marketsthe home country is no
longer the center of the product. An example of a truly global company is Coca
Cola.
Note that these stages represent points on a continuum from a purely domestic
orientation to a truly global one; companies may fall in between these discrete
stages, and different parts of the firm may have characteristics of various
stagesfor example, the pickup truck division of an auto-manufacturer may be
largely domestically focused, while the passenger car division is globally
focused. Although a global focus is generally appropriate for most large firms,
note that it may not be ideal for all companies to pursue the global stage. For
example, manufacturers of ice cubes may do well as domestic, or even locally
centered, firms.

Some forces in international trade. The text contains a rather long-winded

appendix discussing some relatively simple ideas. Comparative advantage,
discussed in more detail in the economics notes, suggests trade between
countries is beneficial because these countries differ in their relative economic
strengthssome have more advanced technology and some have lower costs.
The International Product Life Cycle suggests that countries will differ in their
timing of the demand for various products. Products tend to be adopted more
quickly in the United States and Japan, for example, so once the demand for a
product (say, VCRs) is in the decline in these markets, an increasing market
potential might exist in other countries (e.g., Europe and the rest of Asia).
Internalization/transaction costs refers to the fact that developing certain very
large scale projects, such as an automobile intended for the World market,
may entail such large costs that these must be spread over several countries.

Economics of International Trade

Exchange rates come in two forms:

Floatinghere, currencies are set on the open market based on the

supply of and demand for each currency. For example, all other things
being equal, if the U.S. imports more from Japan than it exports there,
there will be less demand for U.S. dollars (they are not desired for
purchasing goods) and more demand for Japanese yenthus, the price of
the yen, in dollars, will increase, so you will get fewer yen for a dollar.
Fixedcurrencies may be pegged to another currency (e.g., the
Argentine currency is guaranteed in terms of a dollar value), to a
composite of currencies (i.e., to avoid making the currency dependent

entirely on the U.S. dollar, the value might be 0.25*U.S. dollar+4*Mexican

peso+50*Japanese yen+0.2*German mark+0.1*British pound), or to some
other valuable such as gold. Note that it is very difficult to maintain
these fixed exchange ratesgovernments must buy or sell currency on the
open market when currencies go outside the accepted ranges. Fixed
exchange rates, although they produce stability and predictability, tend
to get in the way of market forcesif a currency is kept artificially low, a
country will tend to export too much and import too little.

Trade balances and exchange rates. When exchange rates are allowed to
fluctuate, the currency of a country that tends to run a trade deficit will tend
to decline over time, since there will be less demand for that currency. This
reduced exchange rate will then tend to make exports more attractive in other
countries, and imports less attractive at home.

Measuring country wealth. There are two ways to measure the wealth of a
country. The nominal per capita gross domestic product (GDP) refers to the
value of goods and services produced per person in a country if this value in
local currency were to be exchanged into dollars. Suppose, for example, that
the per capita GDP of Japan is 3,500,000 yen and the dollar exchanges for 100
yen, so that the per capita GDP is (3,500,000/100)=$35,000. However, that
$35,000 will not buy as much in Japanfood and housing are much more
expensive there. Therefore, we introduce the idea of purchase parity adjusted
per capita GDP, which reflects what this money can buy in the country. This is
typically based on the relative costs of a weighted basket of goods in a
country (e.g., 35% of the cost of housing, 40% the cost of food, 10% the cost of
clothing, and 15% cost of other items). If it turns out that this measure of cost
of living is 30% higher in Japan, the purchase parity adjusted GPD in Japan
would then be ($35,000/(130%) = $26,923. (The Gross Domestic Product (GPD)
and Gross National Product (GNP) are almost identical figures. The GNP, for
example, includes income made by citizens working abroad, and does not
include the income of foreigners working in the country. Traditionally, the
GNP was more prevalent; today the GPD is more commonly usedin practice,
the two measures fall within a few percent of each other.)

In general, the nominal per capita GPD is more useful for determining local
consumers ability to buy imported goods, the cost of which are determined in
large measure by the costs in the home market, while the purchase parity
adjusted measure is more useful when products are produced, at local costs, in
the country of purchase. For example, the ability of Argentinians to purchase
micro computer chips, which are produced mostly in the U.S. and Japan, is
better predicted by nominal income, while the ability to purchase toothpaste
made by a U.S. firm in a factory in Argentina is better predicted by purchase
parity adjusted income.

It should be noted that, in some countries, income is quite unevenly distributed

so that these average measures may not be very meaningful. In Brazil, for
example, there is a very large underclass making significantly less than the
national average, and thus, the national figure is not a good indicator of the
purchase power of the mass market. Similarly, great regional differences exist
within some countriesincome is much higher in northern Germany than it is in
the former East Germany, and income in southern Italy is much lower than in

northern Italy.

Political and Legal Influences

The political situation. The political relations between a firms country of

headquarters (or other significant operations) and another one may, through no
fault of the firms, become a major issue. For example, oil companies which
invested in Iraq or Libya became victims of these countries misconduct that
led to bans on trade. Similarly, American firms may be disliked in parts of
Latin America or Iran where the U.S. either had a colonial history or supported
unpopular leaders such as the former shah.
Certain issues in the political environment are particularly significant. Some
countries, such as Russia, have relatively unstable governments, whose policies
may change dramatically if new leaders come to power by democratic or other
means. Some countries have little tradition of democracy, and thus it may be
difficult to implement. For example, even though Russia is supposed to
become a democratic country, the history of dictatorships by the communists
and the czars has left country of corruption and strong influence of criminal
elements.

Laws across borders. When laws of two countries differ, it may be possible in
a contract to specify in advance which laws will apply, although this agreement
may not be consistently enforceable. Alternatively, jurisdiction may be settled
by treaties, and some governments, such as that of the U.S., often apply their
laws to actions, such as anti-competitive behavior, perpetrated outside their
borders (extra-territorial application). By the doctrine known as compulsion, a
firm that violates U.S. law abroad may be able to claim as a defense that it was
forced to do so by the local government; such violations must, however, be
compelledthat they are merely legal or accepted in the host country is not
sufficient.

The reality of legal systems. Some legal systems, such as that of the U.S., are
relatively transparentthat is, the law tends to be what its plain meaning
would suggest. In some countries, however, there are laws on the books which
are not enforced (e.g., although Japan has antitrust laws similar to those of the
U.S., collusion is openly tolerated). Further, the amount of discretion left to
government officials tends to vary. In Japan, through the doctrine of
administrative guidance, great latitude is left to government officials, who
effectively make up the laws.
One serious problem in some countries is a limited access to the legal systems
as a means to redress grievances against other parties. While the U.S. may rely
excessively on lawsuits, the inability to effectively hold contractual partners to
their agreement tends to inhibit business deals. In many jurisdictions, pre-trial
discovery is limited, making it difficult to make a case against a firm whose
internal documents would reveal guilt. This is one reason why personal
relationships in some cultures are considered more significant than in the U.S.
since enforcing contracts may be difficult, you must be sure in advance that
you can trust the other party.
Legal systems of the World. There are four main approaches to law across the
World, with some differences within each:
Common law, the system in effect in the U.S., is based on a legal
tradition of precedent. Each case that raises new issues is considered on
its own merits, and then becomes a precedent for future decisions on
that same issue. Although the legislature can override judicial decisions
by changing the law or passing specific standards through legislation,
reasonable court decisions tend to stand by default.
Code law, which is common in Europe, gives considerably shorter leeway
to judges, who are charged with matching specific laws to
situationsthey cannot come up with innovative solutions when new
issues such as patentability of biotechnology come up. There are also

certain differences in standards. For example, in the U.S. a supplier

whose factory is hit with a strike is expected to deliver on provisions of a
contract, while in code law this responsibility may be nullified by such an
act of God.
Islamic law is based on the teachings of the Koran, which puts forward
mandates such as a prohibition of usury, or excessive interest rates. This
has led some Islamic countries to ban interest entirely; in others, it may
be tolerated within reason. Islamic law is ultimately based on the need
to please God, so getting around the law is generally not acceptable.
Attorneys may be consulted about what might please God rather than
what is an explicit requirements of the government.
Socialist law is based on the premise that the government is always
right and typically has not developed a sophisticated framework of
contracts (you do what the governments tells you to do) or intellectual
property protection (royalties are unwarranted since the government
ultimately owns everything). Former communist countries such as those
of Eastern Europe and Russia are trying to advance their legal systems to
accommodate issues in a free market.
U.S. laws of particular interest to firms doing business abroad.

Anti-trust. U.S. antitrust laws are generally enforced in U.S. courts even if the
alleged transgression occurred outside U.S. jurisdiction. For example, if two
Japanese firms collude to limit the World supply of VCRs, they may be sued by
the U.S. government (or injured third parties) in U.S. courts, and may have
their U.S. assets seized.

The Foreign Corrupt Influences Act came about as Congress was upset
with U.S. firms bribery of foreign officials. Although most if not all
countries ban the payment of bribes, such laws are widely flaunted in
many countries, and it is often useful to pay a bribe to get foreign
government officials to act favorably. Firms engaging in this behavior,
even if it takes place entirely outside the U.S., can be prosecuted in U.S.
courts, and many executives have served long prison sentences for giving
in to temptation. In contrast, in the past some European firms could
actually deduct the cost of foreign bribes from their taxes! There are
some gray areas hereit may be legal to pay certain tips known as
facilitating paymentsto low level government workers in some
countries who rely on such payments as part of their salary so long as
these payments are intended only to speed up actions that would be
taken anyway. For example, it may be acceptable to give a reasonable
(not large) facilitating payment to get customs workers to process a
shipment faster, but it would not be legal to pay these individuals to
change the classification of a product into one that carries a lower tariff.
Anti-boycott laws. Many Arab countries maintain a boycott of Israel, and
foreigners that want to do business with them may be asked to join in this
boycott by stopping any deals they do with Israel and certifying that they
do not trade with that country. It is illegal for U.S. firms to make this
certification even if they have not dropped any actual deals with Israel to
get a deal with boycotters.
Trading With the Enemy. It is illegal for U.S. firms to trade with certain
countries that are viewed to be hostile to the U.S.e.g., Libya and Iraq.

Culture

Culture is part of the external influences that impact the consumer.That is,
culture represents influences that are imposed on the consumer by other
individuals.

The definition of culture offered one text is That complex whole which
includes knowledge, belief, art, morals, custom, and any other capabilities and

habits acquired by man person as a member of society. From this definition,

we make the following observations:

Culture, as a complex whole, is a system of interdependent

components.
Knowledge and beliefs are important parts. In the U.S., we know and
believe that a person who is skilled and works hard will get ahead. In
other countries, it may be believed that differences in outcome result
more from luck. Chunking, the name for China in Chinese, literally
means The Middle Kingdom. The belief among ancient Chinese that
they were in the center of the universe greatly influenced their thinking.
Other issues are relevant. Art, for example, may be reflected in the
rather arbitrary practice of wearing ties in some countries and wearing
turbans in others. Morality may be exhibited in the view in the United
States that one should not be naked in public. In Japan, on the other
hand, groups of men and women may take steam baths together without
perceived as improper. On the other extreme, women in some Arab
countries are not even allowed to reveal their faces. Notice, by the way,
that what at least some countries view as moral may in fact be highly
immoral by the standards of another country.

Culture has several important characteristics: (1) Culture is comprehensive.

This means that all parts must fit together in some logical fashion. For
example, bowing and a strong desire to avoid the loss of face are unified in
their manifestation of the importance of respect. (2) Culture is learned rather
than being something we are born with. We will consider the mechanics of
learning later in the course. (3) Culture is manifested within boundaries of
acceptable behavior. For example, in American society, one cannot show up to
class naked, but wearing anything from a suit and tie to shorts and a T-shirt
would usually be acceptable. Failure to behave within the prescribed norms
may lead to sanctions, ranging from being hauled off by the police for indecent
exposure to being laughed at by others for wearing a suit at the beach. (4)
Conscious awareness of cultural standards is limited. One American spy was
intercepted by the Germans during World War II simply because of the way he
held his knife and fork while eating. (5) Cultures fall somewhere on a
continuum between static and dynamic depending on how quickly they accept
change. For example, American culture has changed a great deal since the
1950s, while the culture of Saudi Arabia has changed much less.

Dealing with culture. Culture is a problematic issue for many marketers since
it is inherently nebulous and often difficult to understand. One may violate the
cultural norms of another country without being informed of this, and people
from different cultures may feel uncomfortable in each others presence
without knowing exactly why (for example, two speakers may unconsciously
continue to attempt to adjust to reach an incompatible preferred interpersonal
distance).

Warning about stereotyping. When observing a culture, one must be careful

not to over-generalize about traits that one sees. Research in social psychology
has suggested a strong tendency for people to perceive an outgroup as more
homogenous than an ingroup, even when they knew what members had been
assigned to each group purely by chance. When there is often a grain of
truth to some of the perceived differences, the temptation to over-generalize
is often strong. Note that there are often significant individual differences
within cultures.
Cultural lessons. We considered several cultural lessons in class; the
important thing here is the big picture. For example, within the Muslim
tradition, the dog is considered a dirty animal, so portraying it as mans
best friend in an advertisement is counter-productive. Packaging, seen as a
reflection of the quality of the real product, is considerably more important
in Asia than in the U.S., where there is a tendency to focus on the contents
which really count. Many cultures observe significantly greater levels of
formality than that typical in the U.S., and Japanese negotiator tend to
observe long silent pauses as a speakers point is considered.

Cultural characteristics as a continuum. There is a tendency to stereotype

cultures as being one way or another (e.g., individualistic rather than
collectivistic). Note, however, countries fall on a continuum of cultural traits.
Hofstedes research demonstrates a wide range between the most
individualistic and collectivistic countries, for examplesome fall in the
middle.
Hofstedes Dimensions. Gert Hofstede, a Dutch researcher, was able to
interview a large number of IBM executives in various countries, and found that
cultural differences tended to center around four key dimensions:

Individualism vs. collectivism: To what extent do people believe in

individual responsibility and reward rather than having these measures
aimed at the larger group? Contrary to the stereotype, Japan actually
ranks in the middle of this dimension, while Indonesia and West Africa
rank toward the collectivistic side. The U.S., Britain, and the
Netherlands rate toward individualism.
Power distance: To what extent is there a strong separation of
individuals based on rank? Power distance tends to be particularly high in
Arab countries and some Latin American ones, while it is more modest in
Northern Europe and the U.S.
Masculinity vs. femininity involves a somewhat more nebulous concept.
Masculine values involve competition and conquering nature by
means such as large construction projects, while feminine values
involve harmony and environmental protection. Japan is one of the more
masculine countries, while the Netherlands rank relatively low. The U.S.
is close to the middle, slightly toward the masculine side. ( The fact that
these values are thought of as masculine or feminine does not mean
that they are consistently held by members of each respective
genderthere are very large within-group differences. There is,
however, often a large correlation of these cultural values with the status
of women.)
Uncertainty avoidance involves the extent to which a structured
situation with clear rules is preferred to a more ambiguous one; in
general, countries with lower uncertainty avoidance tend to be more
tolerant of risk. Japan ranks very high. Few countries are very low in any
absolute sense, but relatively speaking, Britain and Hong Kong are lower,
and the U.S. is in the lower range of the distribution.

Although Hofstedes original work did not address this, a fifth dimension of long
term vs. short term orientation has been proposed. In the U.S., managers like
to see quick results, while Japanese managers are known for take a long term
view, often accepting long periods before profitability is obtained.
High vs. low context cultures: In some cultures, what you see is what you
getthe speaker is expected to make his or her points clear and limit
ambiguity. This is the case in the U.S.if you have something on your mind,
you are expected to say it directly, subject to some reasonable standards of
diplomacy. In Japan, in contrast, facial expressions and what is not said may
be an important clue to understanding a speakers meaning. Thus, it may be
very difficult for Japanese speakers to understand anothers written
communication. The nature of languages may exacerbate this
phenomenonwhile the German language is very precise, Chinese lacks many
grammatical features, and the meaning of words may be somewhat less
precise. English ranks somewhere in the middle of this continuum.

Ethnocentrism and the self-reference criterion. The self-reference criterion

refers to the tendency of individuals, often unconsciously, to use the standards
of ones own culture to evaluate others. For example, Americans may perceive
more traditional societies to be backward and unmotivated because they
fail to adopt new technologies or social customs, seeking instead to preserve
traditional values. In the 1960s, a supposedly well read American psychology
professor referred to Indias culture of sick because, despite severe food
shortages, the Hindu religion did not allow the eating of cows. The

psychologist expressed disgust that the cows were allowed to roam free in
villages, although it turns out that they provided valuable functions by offering
milk and fertilizing fields. Ethnocentrism is the tendency to view ones culture
to be superior to others. The important thing here is to consider how these
biases may come in the way in dealing with members of other cultures.
It should be noted that there is a tendency of outsiders to a culture to
overstate the similarity of members of that culture to each other. In the
United States, we are well aware that there is a great deal of heterogeneity
within our culture; however, we often underestimate the diversity within other
cultures. For example, in Latin America, there are great differences between
people who live in coastal and mountainous areas; there are also great
differences between social classes.
Language issues. Language is an important element of culture. It should be
realized that regional differences may be subtle. For example, one word may
mean one thing in one Latin American country, but something off-color in
another. It should also be kept in mind that much information is carried in
non-verbal communication. In some cultures, we nod to signify yes and
shake our heads to signify no; in other cultures, the practice is reversed.
Within the context of language:

There are often large variations in regional dialects of a given language.

The differences between U.S., Australian, and British English are actually
modest compared to differences between dialects of Spanish and
German.
Idioms involve figures of speech that may not be used, literally
translated, in other languages. For example, baseball is a predominantly
North and South American sport, so the notion of in the ball park makes
sense here, but the term does not carry the same meaning in cultures
where the sport is less popular.
Neologisms involve terms that have come into language relatively
recently as technology or society involved. With the proliferation of
computer technology, for example, the idea of an add-on became
widely known. It may take longer for such terms to diffuse into other
regions of the world. In parts of the World where English is heavily
studied in schools, the emphasis is often on grammar and traditional
language rather than on current terminology, so neologisms have a wide
potential not to be understood.
Slang exists within most languages. Again, regional variations are
common and not all people in a region where slang is used will necessarily
understand this. There are often significant generation gaps in the use of
slang.

Writing patterns, or the socially accepted ways of writing, will differs

significantly between cultures.

In English and Northern European languages, there is an emphasis on

organization and conciseness. Here, a point is made by building up to it
through background. An introduction will often foreshadow what is to be said.
In Romance languages such as Spanish, French, and Portuguese, this style is
often considered boring and inelegant. Detours are expected and are

considered a sign of class, not of poor organization. In Asian languages, there

is often a great deal of circularity. Because of concerns about potential loss of
face, opinions may not be expressed directly. Instead, speakers may hint at
ideas or indicate what others have said, waiting for feedback from the other
speaker before committing to a point of view.
Because of differences in values, assumptions, and language structure, it is not
possible to meaningfully translate word-for-word from one language to
another. A translator must keep unspoken understandings and assumptions
in mind in translating. The intended meaning of a word may also differ from
its literal translation. For example, the Japanese word hai is literally
translated as yes. To Americans, that would imply Yes, I agree. To the
Japanese speaker, however, the word may mean Yes, I hear what you are
saying (without any agreement expressed) or even Yes, I hear you are saying
something even though I am not sure exactly what you are saying.

Differences in cultural values result in different preferred methods of speech.

In American English, where the individual is assumed to be more in control of
his or her destiny than is the case in many other cultures, there is a preference
for the active tense (e.g., I wrote the marketing plan) as opposed to the
passive (e.g., The marketing plan was written by me.)
Because of the potential for misunderstandings in translations, it is dangerous
to rely on a translation from one language to another made by one person. In
the decentering method, multiple translators are used. The text is first
translated by one translatorsay, from German to Mandarin Chinese. A second
translator, who does not know what the original German text said, will then
translate back to German from Mandarin Chinese translation. The text is then
compared. If the meaning is not similar, a third translator, keeping in mind
this feedback, will then translate from German to Mandarin. The process is
continued until the translated meaning appears to be satisfactory.
Different perspectives exist in different cultures on several issues; e.g.:

Monochronic cultures tend to value precise scheduling and doing one

thing at a time; in polychronic cultures, in contrast, promptness is valued
less, and multiple tasks may be performed simultaneously. (See text for
more detail).
Space is perceived differently. Americans will feel crowded where people
from more densely populated countries will be comfortable.
Symbols differ in meaning. For example, while white symbols purity in
the U.S., it is a symbol of death in China. Colors that are considered
masculine and feminine also differ by culture.
Americans have a lot of quite shallow friends toward whom little
obligation is felt; people in European and some Asian cultures have fewer,
but more significant friends. For example, one Ph.D. student from India,
with limited income, felt obligated to try buy an airline ticket for a friend
to go back to India when a relative had died.
In the U.S. and much of Europe, agreements are typically rather precise
and contractual in nature; in Asia, there is a greater tendency to settle
issues as they come up. As a result, building a relationship of trust is
more important in Asia, since you must be able to count on your partner
being reasonable.
In terms of etiquette, some cultures have more rigid procedures than
others. In some countries, for example, there are explicit standards as to
how a gift should be presented. In some cultures, gifts should be
presented in private to avoid embarrassing the recipient; in others, the
gift should be made publicly to ensure that no perception of secret
bribery could be made.

Cross-Cultural Market Research

Primary vs. secondary research. There are two kinds of market research:
Primary research refers to the research that a firm conducts for its own needs
(e.g., focus groups, surveys, interviews, or observation) while secondary
research involves finding information compiled by someone else. In general,
secondary research is less expensive and is faster to conduct, but it may not
answer the specific questions the firm seeks to have answered (e.g., how do
consumers perceive our product?), and its reliability may be in question.

Secondary sources. A number of secondary sources of country information are

available. One of the most convenient sources is an almanac, containing a
great deal of country information. Almanacs can typically be bought for $10.00
or less. The U.S. government also publishes a guide to each country, and the
handbook International Business Information: How to Find It, How to Use It
(HF 54.5.P33 [1998] in the Reference Department of the Gelman Library),
provides leads on numerous sources by topic. Stat-USA, a database compiled
by the U.S. Department of Commerce and available through the Gelman Library
(you can access it through the Links section of my web-site), contains a great
deal of statistical information online. Excellent full text searchable indices to
periodicals include Lexis-Nexis and RDS Business and Industry, also available
through Gelman.
Several experts may be available. Anthropologists and economists in
universities may have built up a great deal of knowledge and may be available
for consulting. Consultants specializing in various regions or industries are
typically considerably more expensive. One should be careful about relying on
the opinions of expatriates (whose views may be biased or outdated) or ones
own experience (which may relate to only part of a country or a certain
subsegment) and may also suffer from the limitation of being a sample of size
1.

Hard vs. soft data. Hard data refers to relatively quantifiable measures such
as a countrys GDP, number of telephones per thousand residents, and birth
rates (although even these supposedly objective factors may be subject to
some controversy due to differing definitions and measurement approaches
across countries). In contrast, soft data refers to more subjective issues such
as country history or culture. It should be noted that while the hard data is
often more convenient and seemingly objective, the soft data is frequently
as important, if not more so, in understanding a market.
Data reliability. The accuracy and objectivity of data depend on several
factors. One significant one is the motivation of the entity that releases it.
For example, some countries may want to exaggerate their citizens literacy
rates owing to national pride, and an organization promoting economic
development may paint an overly rosy picture in order to attract investment.
Some data may be dated (e.g., a census may be conducted rarely in some
regions), and some countries may lack the ability to collect data (it is difficult
to reach people in the interior regions of Latin America, for example).
Differences in how constructs are defined in different countries (e.g., is
military personnel counted in people who are employed?) may make figures of
different jurisdictions non-comparable.

Cost of data. Much government data, or data released by organizations such as

the World Bank or the United Nations, is free or inexpensive, while consultants
may charge very high rates.
Issues in primary research. Cultural factors often influence how people
respond to research. While Americans are used to market research and tend to
find this relatively un-threatening, consumers in other countries may fear that
the data will be reported to the government, and may thus not give accurate
responses. In some cultures, criticism or confrontation are considered rude, so
consumers may not respond honestly when they dislike a product. Technology
such as scanner data is not as widely available outside the United States. Local
customs and geography may make it difficult to interview desired respondents;

for example, in some countries, women may not be allowed to talk to

strangers.

Country Entry: Decisions and Strategies

Segmentation, Targeting, and Positioning. Segmentation, in marketing, is

usually done at the customer level. However, in international marketing, it
may sometimes be useful to see countries as segments. This allows the
decision maker to focus on common aspects of countries and avoid information
overload. It should be noted that variations within some countries (e.g.,
Brazil) are very large and therefore, averages may not be meaningful. Country
level segmentation may be done on levels such as geographybased on the
belief that neighboring countries and countries with a particular type of
climate or terrain tend to share similarities, demographics (e.g., population
growth, educational attainment, population age distribution), or income.
Segmenting on income is tricky since the relative prices between countries may
differ significantly (based, in part, on purchasing power parity measures that
greatly affect the relative cost of imported and domestically produced
products).
The importance of STP. Segmentation is the cornerstone of marketingalmost
all marketing efforts in some way relate to decisions on who to serve or how to
implement positioning through the different parts of the marketing mix. For
example, ones distribution strategy should consider where ones target market
is most likely to buy the product, and a promotional strategy should consider
the targets media habits and which kinds of messages will be most persuasive.
Although it is often tempting, when observing large markets, to try to be "all
things to all people," this is a dangerous strategy because the firm may lose its
distinctive appeal to its chosen segments.
In terms of the "big picture," members of a segment should generally be as
similar as possible to each other on a relevant dimension (e.g., preference for
quality vs. low price) and as different as possible from members of other
segments. That is, members should respond in similar ways to various
treatments (such as discounts or high service) so that common campaigns can
be aimed at segment members, but in order to justify a different treatment of
other segments, their members should have their own unique response
behavior.

Approaches to global segmentation. There are two main approaches to global

segmentation. At the macro level, countries are seen as segments, given that
country aggregate characteristics and statistics tend to differ significantly. For
example, there will only be a large market for expensive pharmaceuticals in
countries with certain income levels, and entry opportunities into infant
clothing will be significantly greater in countries with large and growing
birthrates (in countries with smaller birthrates or stable to declining birthrates,
entrenched competitors will fight hard to keep the market share).

There are, however, significant differences within countries. For example,

although it was thought that the Italian market would demand "no frills"
inexpensive washing machines while German consumers would insist on high
quality, very reliable ones, it was found that more units of the inexpensive kind
were sold in Germany than in Italyalthough many German consumers fit the
predicted profile, there were large segment differences within that country. At
the micro level, where one looks at segments within countries. Two approaches
exist, and their use often parallels the firms stage of international
involvement. Intramarket segmentation involves segmenting each countrys
markets from scratchi.e., an American firm going into the Brazilian market
would do research to segment Brazilian consumers without incorporating
knowledge of U.S. buyers. In contrast, intermarket segmentation involves the
detection of segments that exist across borders. Note that not all segments
that exist in one country will exist in another and that the sizes of the

segments may differ significantly. For example, there is a huge small car
segment in Europe, while it is considerably smaller in the U.S.

Intermarket segmentation entails several benefits. The fact that products and
promotional campaigns may be used across markets introduces economies of
scale, and learning that has been acquired in one market may be used in
anothere.g., a firm that has been serving a segment of premium quality
cellular phone buyers in one country can put its experience to use in another
country that features that same segment. (Even though segments may be
similar across the cultures, it should be noted that it is still necessary to learn
about the local market. For example, although a segment common across two
countries may seek the same benefits, the cultures of each country may cause
people to respond differently to the "hard sell" advertising that has been
successful in one).

The international product life cycle suggests that product adoption and spread
in some markets may lag significantly behind those of others. Often, then, a
segment that has existed for some time in an "early adopter" country such as
the U.S. or Japan will emerge after several years (or even decades) in a "late
adopter" country such as Britain or most developing countries. (We will discuss
this issue in more detail when we cover the product mix in the second half of
the term).

Positioning across markets. Firms often have to make a tradeoff between

adapting their products to the unique demands of a country market or gaining
benefits of standardization such as cost savings and the maintenance of a
consistent global brand image. There are no easy answers here. On the one
hand, McDonalds has spent a great deal of resources to promote its global
image; on the other hand, significant accommodations are made to local tastes
and preferencesfor example, while serving alcohol in U.S. restaurants would
go against the family image of the restaurant carefully nurtured over several
decades, McDonalds has accommodated this demand of European patrons.
The Japanese Keiretsu Structure. In Japan, many firms are part of a
keiretsu, or a conglomerate that ties together businesses that can aid each
other. For example, a keiretsu might contain an auto division that buys from a
steel division. Both of these might then buy from a iron mining division, which
in turns buys from a chemical division that also sells to an agricultural division.
The agricultural division then sells to the restaurant division, and an
electronics division sells to all others, including the auto division. Since the
steel division may not have opportunities for reinvestment, it puts its profits in
a bank in the center, which in turns lends it out to the electronics division that
is experiencing rapid growth.

This practice insulates the businesses to some extent against the business
cycle, guaranteeing an outlet for at least some product in bad times, but this
structure has caused problems in Japan as it has failed to "root out" inefficient
keiretsu members which have not had to "shape up" to the rigors of the market.
Methods of entry. With rare exceptions, products just dont emerge in foreign
markets overnighta firm has to build up a market over time. Several
strategies, which differ in aggressiveness, risk, and the amount of control that
the firm is able to maintain, are available:

Exporting is a relatively low risk strategy in which few investments are

made in the new country. A drawback is that, because the firm makes
few if any marketing investments in the new country, market share may
be below potential. Further, the firm, by not operating in the country,
learns less about the market (What do consumers really want? Which
kinds of advertising campaigns are most successful? What are the most
effective methods of distribution?) If an importer is willing to do a good
job of marketing, this arrangement may represent a "win-win" situation,
but it may be more difficult for the firm to enter on its own later if it
decides that larger profits can be made within the country.
Licensing and franchising are also low exposure methods of entryyou
allow someone else to use your trademarks and accumulated expertise.
Your partner puts up the money and assumes the risk. Problems here
involve the fact that you are training a potential competitor and that you
have little control over how the business is operated. For example,
American fast food restaurants have found that foreign franchisers often
fail to maintain American standards of cleanliness. Similarly, a foreign
manufacturer may use lower quality ingredients in manufacturing a brand
based on premium contents in the home country.
Contract manufacturing involves having someone else manufacture
products while you take on some of the marketing efforts yourself. This
saves investment, but again you may be training a competitor.
Direct entry strategies, where the firm either acquires a firm or builds
operations "from scratch" involve the highest exposure, but also the
greatest opportunities for profits. The firm gains more knowledge about
the local market and maintains greater control, but now has a huge
investment. In some countries, the government may expropriate assets
without compensation, so direct investment entails an additional risk. A
variation involves a joint venture, where a local firm puts up some of the
money and knowledge about the local market.
Entry Strategies

Methods of entry. With rare exceptions, products just dont emerge in foreign
markets overnighta firm has to build up a market over time. Several
strategies, which differ in aggressiveness, risk, and the amount of control that
the firm is able to maintain, are available:

 Exporting is a relatively low risk strategy in which few investments are

made in the new country. A drawback is that, because the firm makes
few if any marketing investments in the new country, market share may
be below potential. Further, the firm, by not operating in the country,
learns less about the market (What do consumers really want? Which
kinds of advertising campaigns are most successful? What are the most
effective methods of distribution?) If an importer is willing to do a good
job of marketing, this arrangement may represent a "win-win" situation,
but it may be more difficult for the firm to enter on its own later if it
decides that larger profits can be made within the country.
Licensing and franchising are also low exposure methods of entryyou
allow someone else to use your trademarks and accumulated expertise.
Your partner puts up the money and assumes the risk. Problems here
involve the fact that you are training a potential competitor and that you
have little control over how the business is operated. For example,
American fast food restaurants have found that foreign franchisers often
fail to maintain American standards of cleanliness. Similarly, a foreign
manufacturer may use lower quality ingredients in manufacturing a brand
based on premium contents in the home country.
Turnkey Projects. A firm uses knowledge and expertise it has gained in
one or more markets to provide a working projecte.g., a factory,
building, bridge, or other structureto a buyer in a new country. The
firm can take advantage of investments already made in technology
and/or development and may be able to receive greater profits since
these investments do not have to be started from scratch again.
However, getting the technology to work in a new country may be
challenging for a firm that does not have experience with the
infrastructure, culture, and legal environment.
Management Contracts. A firm agrees to manage a facilitye.g., a
factory, port, or airportin a foreign country, using knowledge gained in
other markets. Again, one thing is to be able to transfer
technologyanother is to be able to work in a new country with a
different infrastructure, culture, and political/legal environment.
Contract manufacturing involves having someone else manufacture
products while you take on some of the marketing efforts yourself. This
saves investment, but again you may be training a competitor.
Direct entry strategies, where the firm either acquires a firm or builds
operations "from scratch" involve the highest exposure, but also the
greatest opportunities for profits. The firm gains more knowledge about
the local market and maintains greater control, but now has a huge
investment. In some countries, the government may expropriate assets
without compensation, so direct investment entails an additional risk. A
variation involves a joint venture, where a local firm puts up some of the
money and knowledge about the local market.

Product Issues in International Marketing

Products and Services. Some marketing scholars and professionals tend to

draw a strong distinction between conventional products and services,
emphasizing service characteristics such as heterogeneity (variation in
standards among providers, frequently even among different locations of the
same firm), inseperability from consumption, intangibility, and, in some cases,
perishabilitythe idea that a service cannot generally be created during times
of slack and be stored for use later. However, almost all products have at
least some service componente.g., a warranty, documentation, and
distributionand this service component is an integral part of the product and
its positioning. Thus, it may be more useful to look at the product-service
continuum as one between very low and very high levels of tangibility of the
service. Income tax preparation, for example, is almost entirely
intangiblethe client may receive a few printouts, but most of the value is in
the service. On the other hand, a customer who picks up rocks for construction
from a landowner gets a tangible product with very little value added for

service. Firms that offer highly tangible products often seek to add an
intangible component to improve perception. Conversely, adding a tangible
element to a servicee.g., a binder with informationmay address many
consumers psychological need to get something to show for their money.

On the topic of services, cultural issues may be even more prominent than they
are for tangible goods. There are large variations in willingness to pay for
quality, and often very large differences in expectations. In some countries, it
may be more difficult to entice employees to embrace a firms customer
service philosophy. Labor regulations in some countries make it difficult to
terminate employees whose treatment of customers is substandard. Speed of
service is typically important in the U.S. and western countries but personal
interaction may seem more important in other countries.

Product Need Satisfaction. We often take for granted the obvious need that
products seem to fill in our own culture; however, functions served may be
very different in othersfor example, while cars have a large transportation
role in the U.S., they are impractical to drive in Japan, and thus cars there
serve more of a role of being a status symbol or providing for individual
indulgence. In the U.S., fast food and instant drinks such as Tang are intended
for convenience; elsewhere, they may represent more of a treat. Thus, it is
important to examine through marketing research consumers true motives,
desires, and expectations in buying a product.
Approaches to Product Introduction. Firms face a choice of alternatives in
marketing their products across markets. An extreme strategy involves
customization, whereby the firm introduces a unique product in each country,
usually with the belief tastes differ so much between countries that it is
necessary more or less to start from scratch in creating a product for each
market. On the other extreme, standardization involves making one global
product in the belief the same product can be sold across markets without
significant modificatione.g., Intel microprocessors are the same regardless of
the country in which they are sold. Finally, in most cases firms will resort to
some kind of adaptation, whereby a common product is modified to some
extent when moved between some marketse.g., in the United States, where
fuel is relatively less expensive, many cars have larger engines than their
comparable models in Europe and Asia; however, much of the design is similar
or identical, so some economies are achieved. Similarly, while Kentucky Fried
Chicken serves much the same chicken with the eleven herbs and spices in
Japan, a lesser amount of sugar is used in the potato salad, and fries are
substituted for mashed potatoes.

There are certain benefits to standardization. Firms that produce a global

product can obtain economies of scale in manufacturing, and higher quantities
produced also lead to a faster advancement along the experience curve.
Further, it is more feasible to establish a global brand as less confusion will
occur when consumers travel across countries and see the same product. On
the down side, there may be significant differences in desires between cultures
and physical environmentse.g., software sold in the U.S. and Europe will
often utter a beep to alert the user when a mistake has been made;
however, in Asia, where office workers are often seated closely together, this
could cause embarrassment.
Adaptations come in several forms. Mandatory adaptations involve changes
that have to be made before the product can be usede.g., appliances made
for the U.S. and Europe must run on different voltages, and a major problem
was experienced in the European Union when hoses for restaurant frying
machines could not simultaneously meet the legal requirements of different
countries. Discretionary changes are changes that do not have to be made
before a product can be introduced (e.g., there is nothing to prevent an
American firm from introducing an overly sweet soft drink into the Japanese
market), although products may face poor sales if such changes are not made.
Discretionary changes may also involve cultural adaptationse.g., in Sesame
Street, the Big Bird became the Big Camel in Saudi Arabia.

Another distinction involves physical product vs. communication adaptations.

In order for gasoline to be effective in high altitude regions, its octane must be
higher, but it can be promoted much the same way. On the other hand, while
the same bicycle might be sold in China and the U.S., it might be positioned as
a serious means of transportation in the former and as a recreational tool in
the latter. In some cases, products may not need to be adapted in either way
(e.g., industrial equipment), while in other cases, it might have to be adapted
in both (e.g., greeting cards, where the both occasions, language, and
motivations for sending differ). Finally, a market may exist abroad for a
product which has no analogue at homee.g., hand-powered washing
machines.
Branding. While Americans seem to be comfortable with category specific
brands, this is not the case for Asian consumers. American firms observed that
their products would be closely examined by Japanese consumers who could
not find a major brand name on the packages, which was required as a sign of
quality. Note that Japanese keiretsus span and use their brand name across
multiple industriese.g., Mitsubishi, among other things, sells food,
automobiles, electronics, and heavy construction equipment.

The International Product Life Cycle (PLC). Consumers in different countries

differ in the speed with which they adopt new products, in part for economic
reasons (fewer Malaysian than American consumers can afford to buy VCRs) and
in part because of attitudes toward new products (pharmaceuticals upset the
power afforded to traditional faith healers, for example). Thus, it may be
possible, when one market has been saturated, to continue growth in another
markete.g., while somewhere between one third and one half of American
homes now contain a computer, the corresponding figures for even Europe and
Japan are much lower and thus, many computer manufacturers see greater
growth potential there. Note that expensive capital equipment may also cycle
between countriese.g., airlines in economically developed countries will
often buy the newest and most desired aircraft and sell off older ones to their
counterparts in developing countries. While in developed countries, three
part canning machines that solder on the bottom with lead are unacceptable
for health reasons, they have found a market in developing countries.

Diffusion of innovation. Good new innovations often do not spread as quickly

as one might expecte.g., although the technology for microwave ovens has
existed since the 1950s, they really did not take off in the United States until
the late seventies or early eighties, and their penetration is much lower in
most other countries. The typewriter, telephone answering machines, and
cellular phones also existed for a long time before they were widely adopted.

Certain characteristics of products make them more or less likely to spread.

One factor is relative advantage. While a computer offers a huge advantage
over a typewriter, for example, the added gain from having an electric
typewriter over a manual one was much smaller. Another issue is
compatibility, both in the social and physical sense. A major problem with the
personal computer was that it could not read the manual files that firms had
maintained, and birth control programs are resisted in many countries due to
conflicts with religious values. Complexity refers to how difficult a new
product is to usee.g., some people have resisted getting computers because
learning to use them takes time. Trialability refers to the extent to which one
can examine the merits of a new product without having to commit a huge
financial or personal investmente.g., it is relatively easy to try a restaurant
with a new ethnic cuisine, but investing in a global positioning navigation
system is riskier since this has to be bought and installed in ones car before
the consumer can determine whether it is worthwhile in practice. Finally,
observability refers to the extent to which consumers can readily see others
using the producte.g., people who do not have ATM cards or cellular phones
can easily see the convenience that other people experience using them; on
the other hand, VCRs are mostly used in peoples homes, and thus only an
owners close friends would be likely to see it.

At the societal level, several factors influence the spread of an innovation. Not
surprisingly, cosmopolitanism, the extent to which a country is connected to
other cultures, is useful. Innovations are more likely to spread where there is a
higher percentage of women in the work force; these women both have more
economic power and are able to see other people use the products and/or
discuss them. Modernity refers to the extent to which a culture values
progress. In the U.S., new and improved is considered highly attractive; in
more traditional countries, their potential for disruption cause new products to
be seen with more skepticism. Although U.S. consumers appear to adopt new
products more quickly than those of other countries, we actually score lower
on homiphily, the extent to which consumers are relatively similar to each
other, and physical distance, where consumers who are more spread out are
less likely to interact with other users of the product. Japan, which ranks
second only to the U.S., on the other hand, scores very well on these latter two
factors.

International Promotion

Promotional tools. Numerous tools can be used to influence consumer

purchases:

Advertisingin or on newspapers, radio, television, billboards, busses,

taxis, or the Internet.
Price promotionsproducts are being made available temporarily as at a
lower price, or some premium (e.g., toothbrush with a package of
toothpaste) is being offered for free.
Sponsorships
Point-of-purchasethe manufacturer pays for extra display space in the
store or puts a coupon right by the product
Other method of getting the consumers attentionall the Gap stores in
France may benefit from the prominence of the new store located on the
Champs-Elysees

Promotional objectives. Promotional objectives involve the question of what

the firm hopes to achieve with a campaignincreasing profits is too vague an
objective, since this has to be achieved through some intermediate outcome
(such as increasing market share, which in turn is achieved by some change in
consumers which cause them to buy more). Some common objectives that
firms may hold:

Awareness. Many French consumers do not know that the Gap even
exists, so they cannot decide to go shopping there. This objective is
often achieved through advertising, but could also be achieved through
favorable point-of-purchase displays. Note that since advertising and
promotional stimuli are often afforded very little attention by consumers,
potential buyers may have to be exposed to the promotional stimulus
numerous times before it registers.
Trial. Even when consumers know that a product exists and could
possibly satisfy some of their desires, it may take a while before they get
around to trying the productespecially when there are so many other
products that compete for their attention and wallets. Thus, the next
step is often to try get consumer to try the product at least once, with
the hope that they will make repeat purchases. Coupons are often an
effective way of achieving trial, but these are illegal in some countries
and in some others, the infrastructure to readily accept coupons (e.g.,
clearing houses) does not exist. Continued advertising and point-ofpurchase displays may be effective. Although Coca Cola is widely known
in China, a large part of the population has not yet tried the product.
Attitude toward the product. A high percentage of people in the U.S.
and Europe has tried Coca Cola, so a more reasonable objective is to get
people to believe positive things about the producte.g., that it has a
superior taste and is better than generics or store brands. This is often
achieved through advertising.
Temporary sales increases. For mature products and categories,
attitudes may be fairly well established and not subject to cost-effective
change. Thus, it may be more useful to work on getting temporary
increases in sales (which are likely to go away the incentives are
removed). In the U.S. and Japan, for example, fast food restaurants may
run temporary price promotions to get people to eat out more or switch
from competitors, but when these promotions end, sales are likely to
move back down again (in developing countries, in contrast, trial may be
a more appropriate objective in this category).

Note that in new or emerging markets, the first objectives are more likely to
be useful while, for established products, the latter objectives may be more
useful in mature markets such as Japan, the U.S., and Western Europe.

Constraints on Global Communications Strategies. Although firms that seek

standardized positions may seek globally unified campaigns, there are several
constraints:

Language barriers: The advertising will have to be translated, not just

into the generic language category (e.g., Portuguese) but also into the
specific version spoken in the region (e.g., Brazilian Portuguese).
(Occasionally, foreign language ads are deliberately run to add mystique
to a product, but this is the exception rather than the rule).
Cultural barriers. Subtle cultural differences may make an ad that tested
well in one country unsuitable in anothere.g., an ad that featured a
man walking in to join his wife in the bathroom was considered an
inappropriate invasion in Japan. Symbolism often differs between
cultures, and humor, which is based on the contrast to peoples
experiences, tends not to travel well. Values also tend to differ between
culturesin the U.S. and Australia, excelling above the group is often
desirable, while in Japan, The nail that sticks out gets hammered
down. In the U.S., The early bird gets the worm while in China The
first bird in the flock gets shot down.
Local attitudes toward advertising. People in some countries are more
receptive to advertising than others. While advertising is accepted as a
fact of life in the U.S., some Europeans find it too crass and commercial.
Media infrastructure. Cable TV is not well developed in some countries
and regions, and not all media in all countries accept advertising.
Consumer media habits also differ dramatically; newspapers appear to
have a higher reach than television and radio in parts of Latin America.
Advertising regulations. Countries often have arbitrary rules on what can
be advertised and what can be claimed. Comparative advertising is
banned almost everywhere outside the U.S. Holland requires that a
toothbrush be displayed in advertisements for sweets, and some countries
require that advertising to be shown there be produced in the country.

Some cultural dimensions:

Directness vs. indirectness: U.S. advertising tends to emphasize directly

why someone would benefit from buying the product. This, however, is
considered too pushy for Japanese consumers, where it is felt to be
arrogant of the seller to presume to know what the consumer would like.
Comparison: Comparative advertising is banned in most countries and
would probably be very counterproductive, as an insulting instance of

confrontation and bragging, in Asia even if it were allowed. In the U.S.,

comparison advertising has proven somewhat effective (although its
implementation is tricky) as a way to persuade consumers what to buy.
Humor. Although humor is a relatively universal phenomenon, what is
considered funny between countries differs greatly, so pre-testing is
essential.
Gender roles. A study found that women in U.S. advertising tended to be
shown in more traditional roles in the U.S. than in Europe or Australia.
On the other hand, some countries are even more traditionale.g., a
Japanese ad that claimed a camera to be so simple that even a woman
can use it was not found to be unusually insulting.
Explicitness. Europeans tend to allow for considerably more explicit
advertisements, often with sexual overtones, than Americans.
Sophistication. Europeans, particularly the French, demand considerably
more sophistication than Americans who may react more favorably to
emotional appealse.g., an ad showing a mentally retarded young man
succeeding in a job at McDonalds was very favorably received in the U.S.
but was booed at the Cannes film festival in France.
Popular vs. traditional culture. U.S. ads tend to employ contemporary,
popular culture, often including current music while those in more
traditional cultures tend to refer more to classical culture.
Information content vs. fluff. American ads contain a great deal of
puffery, which was found to be very ineffective in Eastern European
countries because it resembled communist propaganda too much. The
Eastern European consumers instead wanted hard, cold facts.

Advertising standardization. Issues surrounding advertising standardization

tend to parallel issues surrounding product and positioning standardization. On
the plus side, economies of scale are achieved, a consistent image can be
established across markets, creative talent can be utilized across markets, and
good ideas can be transplanted from one market to others. On the down side,
cultural differences, peculiar country regulations, and differences in product
life cycle stages make this approach difficult. Further, local advertising
professionals may resist campaigns imposed from the outsidesometimes with
good reasons and sometimes merely to preserve their own creative autonomy.

Legal issues. Countries differ in their regulations of advertising, and some

products are banned from advertising on certain media (large supermarket
chains are not allowed to advertise on TV in France, for example). Other forms
of promotion may also be banned or regulated. In some European countries,
for example, it is illegal to price discriminate between consumers, and thus
coupons are banned and in some, it is illegal to offer products on sale outside a
very narrow seasonal and percentage range.

Pricing Issues in International Marketing

Price can best be defined in ratio terms, giving the equation

resources given up

price =
goods received

This implies that there are several ways that the price can be changed:

"Sticker" price changesthe most obvious way to change the price is the
price tag you get the same thing, but for a different (usually larger)
amount of money.
Change quantity. Often, consumers respond unfavorably to an increased
sticker price, and changes in quantity are sometimes noticed lesse.g., in
the 1970s, the wholesale cost of chocolate increased dramatically, and
candy manufacturers responded by making smaller candy bars. Note that,
for cash flow reasons, consumers in less affluent countries may need to
buy smaller packages at any one time (e.g., forking out the money for a
large tube of toothpaste is no big deal for most American families, but it
introduces a greater strain on the budget of a family closer to the
subsistence level).
Change quality. Another way candy manufacturers have effectively
increased prices is through a reduction in quality. In a candy bar, the
"gooey" stuff is much cheaper than chocolate. It is frequently tempting
for foreign licensees of a major brand name to use inferior ingredients.
Change terms. In the old days, most software manufacturers provided
free support for their programsit used to be possible to call the
WordPerfect Corporation on an 800 number to get free help. Nowadays,
you either have to call a 900 number or have a credit card handy to get
help from many software makers. Another way to change terms is to do
away with favorable financing terms.

Reference Prices. Consumers often develop internal reference prices, or

expectations about what something should cost, based mostly on their
experience. Most drivers with long commutes develop a good feeling of what
gasoline should cost, and can tell a bargain or a ripoff.

Reference prices are more likely to be more precise for frequently purchased
and highly visible products. Therefore, retailers very often promote soft drinks,
since consumers tend to have a good idea of prices and these products are
quite visible. The trick, then, is to be more expensive on products where price
expectations are muddier.
Marketers often try to influence people's price perceptions through the use of
external reference pricesindicators given to the consumer as to how much
something should cost. Examples include:

Manufacturer's Suggested Retail Price (MSRP). This is often pure fiction.

The suggested retail prices in certain categories are deliberately set so
high that even full service retailers can sell at a "discount." Thus,
although the consumer may contrast the offering price against the MSRP,
this latter figure is quite misleading.
"SALE! Now $2.99; Regular Price $5.00." For this strategy to be used
legally in most countries, the claim must be true (consistency of
enforcement in some countries is, of course, another matter). However,
certain products are put on sale so frequently that the "regular" price is
meaningless. In the early 1990s, Sears was reported to sell some 55% of
its merchandise on sale.
"WAS $10.00, now $6.99."
"Sold elsewhere for $150.00; our price: $99.99."

Reference prices have significant international implications. While marketers

may choose to introduce a product at a low price in order to induce trial, which
is useful in a new market where the penetration of a product is low, this may
have serious repercussions as consumers may develop a low reference price and
may thus resist paying higher prices in the future.
Selected International Pricing Issues. In some cultures, particularly where retail
stores are smaller and the buyer has the opportunity to interact with the

owner, bargaining may be more common, and it may thus be more difficult for
the manufacturer to influence retail level pricing.

Two phenomena may occur when products are sold in disparate markets. When
a product is exported, price escalation, whereby the product dramatically
increases in price in the export market, is likely to take place. This usually
occurs because a longer distribution chain is necessary and because smaller
quantities sold through this route will usually not allow for economies of scale.
"Gray" markets occur when products are diverted from one market in which
they are cheaper to another one where prices are highere.g., Luis Vuitton
bags were significantly more expensive in Japan than in France, since the profit
maximizing price in Japan was higher and thus bags would be bought in France
and shipped to Japan for resale. The manufacturer therefore imposed quantity
limits on buyers. Since these quantity limits were circumvented by enterprising
exchange students who were recruited to buy their quota on a daily basis,
prices eventually had to be lowered in Japan to make the practice of diversion
unattractive. Where the local government imposes price controls, a firm may
find the market profitable to enter nevertheless since revenues from the new
market only have to cover marginal costs. However, products may then be
attractive to divert to countries without such controls.
Transfer pricing involves what one subsidiary will charge another for products
or components supplied for use in another country. Firms will often try to
charge high prices to subsidiaries in countries with high taxes so that the
income earned there will be minimized.

Antitrust laws are relevant in pricing decisions, and anti-dumping regulations

are especially noteworthy. In general, it is illegal to sell a product below your
cost of production, which may make a penetration pricing entry strategy
infeasible. Japan has actively lobbied the World Trade Organization (WTO) to
relax its regulations, which generally require firms to price no lower than their
average fully absorbed cost (which incorporates both variable and fixed costs).
Alternatives to "hard" currency deals. Buyers in some countries do not have
ready access to convertible currency, and governments will often try limit
firms ability to spend money abroad. Thus, some firms have been forced into
non-cash deals. In barter, the seller takes payment in some product produced
in the buying countrye.g., Lockheed (back when it was an independent firm)
took Spanish wine in return for aircraft, and sellers to Eastern Europe have
taken their payment in ham. An offset contract is somewhat more flexible in
that the buyer can get paid but instead has to buy, or cause others to buy,
products for a certain value within a specified period of time.

Psychological issues: Most pricing research has been done on North Americans,
and this raises serious problems of generalizability. Americans are used to
sales, for example, while consumers in countries where goods are more scarce
may attribute a sale to low quality rather than a desire to gain market share.
There is some evidence that perceived price quality relationships are quite high
in Britain and Japan (thus, discount stores have had difficulty there), while in
developing countries, there is less trust in the market. Cultural differences may
influence the extent of effort put into evaluating deals (potentially impacting
the effectiveness of odd-even pricing and promotion signaling). The fact that
consumers in some economies are usually paid weekly, as opposed to biweekly
or monthly, may influence the effectiveness of framing attempts"a dollar a
day" is a much bigger chunk from a weekly than a monthly paycheck.

International Distribution

Promotional tools. Numerous tools can be used to influence consumer

purchases:

Advertisingin or on newspapers, radio, television, billboards, busses,

taxis, or the Internet.
Price promotionsproducts are being made available temporarily as at a
lower price, or some premium (e.g., toothbrush with a package of
toothpaste) is being offered for free.
Sponsorships
Point-of-purchasethe manufacturer pays for extra display space in the
store or puts a coupon right by the product
Other method of getting the consumers attentionall the Gap stores in
France may benefit from the prominence of the new store located on the
Champs-Elysees.

Promotional objectives. Promotional objectives involve the question of what

the firm hopes to achieve with a campaignincreasing profits is too vague an
objective, since this has to be achieved through some intermediate outcome
(such as increasing market share, which in turn is achieved by some change in
consumers which cause them to buy more). Some common objectives that
firms may hold:

Awareness. Many French consumers do not know that the Gap even
exists, so they cannot decide to go shopping there. This objective is
often achieved through advertising, but could also be achieved through
favorable point-of-purchase displays. Note that since advertising and
promotional stimuli are often afforded very little attention by consumers,
potential buyers may have to be exposed to the promotional stimulus
numerous times before it registers.
Trial. Even when consumers know that a product exists and could
possibly satisfy some of their desires, it may take a while before they get
around to trying the productespecially when there are so many other
products that compete for their attention and wallets. Thus, the next
step is often to try get consumer to try the product at least once, with
the hope that they will make repeat purchases. Coupons are often an

effective way of achieving trial, but these are illegal in some countries
and in some others, the infrastructure to readily accept coupons (e.g.,
clearing houses) does not exist. Continued advertising and point-ofpurchase displays may be effective. Although Coca Cola is widely known
in China, a large part of the population has not yet tried the product.
Attitude toward the product. A high percentage of people in the U.S.
and Europe has tried Coca Cola, so a more reasonable objective is to get
people to believe positive things about the producte.g., that it has a
superior taste and is better than generics or store brands. This is often
achieved through advertising.
Temporary sales increases. For mature products and categories,
attitudes may be fairly well established and not subject to cost-effective
change. Thus, it may be more useful to work on getting temporary
increases in sales (which are likely to go away the incentives are
removed). In the U.S. and Japan, for example, fast food restaurants may
run temporary price promotions to get people to eat out more or switch
from competitors, but when these promotions end, sales are likely to
move back down again (in developing countries, in contrast, trial may be
a more appropriate objective in this category).

Note that in new or emerging markets, the first objectives are more likely to
be useful while, for established products, the latter objectives may be more
useful in mature markets such as Japan, the U.S., and Western Europe.

Constraints on Global Communications Strategies. Although firms that seek

standardized positions may seek globally unified campaigns, there are several
constraints:

Language barriers: The advertising will have to be translated, not just

into the generic language category (e.g., Portuguese) but also into the
specific version spoken in the region (e.g., Brazilian Portuguese).
(Occasionally, foreign language ads are deliberately run to add mystique
to a product, but this is the exception rather than the rule).
Cultural barriers. Subtle cultural differences may make an ad that tested
well in one country unsuitable in anothere.g., an ad that featured a
man walking in to join his wife in the bathroom was considered an
inappropriate invasion in Japan. Symbolism often differs between
cultures, and humor, which is based on the contrast to peoples
experiences, tends not to travel well. Values also tend to differ between
culturesin the U.S. and Australia, excelling above the group is often
desirable, while in Japan, The nail that sticks out gets hammered
down. In the U.S., The early bird gets the worm while in China The
first bird in the flock gets shot down.
Local attitudes toward advertising. People in some countries are more
receptive to advertising than others. While advertising is accepted as a
fact of life in the U.S., some Europeans find it too crass and commercial.
Media infrastructure. Cable TV is not well developed in some countries
and regions, and not all media in all countries accept advertising.
Consumer media habits also differ dramatically; newspapers appear to
have a higher reach than television and radio in parts of Latin America.
Advertising regulations. Countries often have arbitrary rules on what can
be advertised and what can be claimed. Comparative advertising is
banned almost everywhere outside the U.S. Holland requires that a
toothbrush be displayed in advertisements for sweets, and some countries
require that advertising to be shown there be produced in the country.

Some cultural dimensions:

Directness vs. indirectness: U.S. advertising tends to emphasize directly

why someone would benefit from buying the product. This, however, is
considered too pushy for Japanese consumers, where it is felt to be
arrogant of the seller to presume to know what the consumer would like.
Comparison: Comparative advertising is banned in most countries and
would probably be very counterproductive, as an insulting instance of
confrontation and bragging, in Asia even if it were allowed. In the U.S.,

comparison advertising has proven somewhat effective (although its

implementation is tricky) as a way to persuade consumers what to buy.
Humor. Although humor is a relatively universal phenomenon, what is
considered funny between countries differs greatly, so pre-testing is
essential.
Gender roles. A study found that women in U.S. advertising tended to be
shown in more traditional roles in the U.S. than in Europe or Australia.
On the other hand, some countries are even more traditionale.g., a
Japanese ad that claimed a camera to be so simple that even a woman
can use it was not found to be unusually insulting.
Explicitness. Europeans tend to allow for considerably more explicit
advertisements, often with sexual overtones, than Americans.
Sophistication. Europeans, particularly the French, demand considerably
more sophistication than Americans who may react more favorably to
emotional appealse.g., an ad showing a mentally retarded young man
succeeding in a job at McDonalds was very favorably received in the U.S.
but was booed at the Cannes film festival in France.
Popular vs. traditional culture. U.S. ads tend to employ contemporary,
popular culture, often including current music while those in more
traditional cultures tend to refer more to classical culture.
Information content vs. fluff. American ads contain a great deal of
puffery, which was found to be very ineffective in Eastern European
countries because it resembled communist propaganda too much. The
Eastern European consumers instead wanted hard, cold facts.

Advertising standardization. Issues surrounding advertising standardization

tend to parallel issues surrounding product and positioning standardization. On
the plus side, economies of scale are achieved, a consistent image can be
established across markets, creative talent can be utilized across markets, and
good ideas can be transplanted from one market to others. On the down side,
cultural differences, peculiar country regulations, and differences in product
life cycle stages make this approach difficult. Further, local advertising
professionals may resist campaigns imposed from the outsidesometimes with
good reasons and sometimes merely to preserve their own creative autonomy.

Legal issues. Countries differ in their regulations of advertising, and some

products are banned from advertising on certain media (large supermarket
chains are not allowed to advertise on TV in France, for example). Other forms
of promotion may also be banned or regulated. In some European countries,
for example, it is illegal to price discriminate between consumers, and thus
coupons are banned and in some, it is illegal to offer products on sale outside a
very narrow seasonal and percentage range.